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FOREIGN EXCHANGE

And the winner is...

I’d like to say that I was absolutely inundated with answers to my little Christmas quiz. I’d like to, but I can’t. I can only think that this must be because of the retiring and shy nature of those active in the FX market and their reluctance to see their name in lights. Worse, I’m disappointed I didn’t get any correct answers sent in from warm and sunny climes, such as Sydney – I was rather looking forward to a lunch down under.


The winner takes it all


Instead, I have to go out with Rob Gray, senior manager, institutional sales at Saxo Bank in London. Rob has requested we go for what he calls a “meat feast” at Simpsons Tavern, Cornhill, one of the City of London’s most traditional dining places. I shall of course oblige, even though I’m meant to be in training. I guess I shall not treat my body as the temple it is next Friday.


Anyway, for those who want to know, the answers to the quiz are as follows: 


Christmas quiz 1. Name the only bank with the confidence to admit, on the record, that it pre-empted its clients’ orders?

     1 UBS;

2. Who was the highest profile individual loser to get plucked and stuffed by Turkey?

     2 Eliezer Fishman;

3. Name the bank that is still, apparently, sulking after I labelled it as “transparently stupid”.

     3 HSBC;

4. Who made the now infamous claim that the dealing room of the future would contain just a computer, a man and a dog?

     4 Chris Skinner;

5. Which airline sold me a seat better suited to Heather Mills than Mr Angry?

     5 Virgin Atlantic;

6. “If the management couldn’t see what was going on, they must have had shit for brains.” Which bank is this perceptive and very experienced trader referring to?

     6 National Australia Bank;

7. What was the first job of the man apparently behind the revolutionary new trading platform, YoursMineShag? 

     7 Worked on the Ford production line in Dagenham

8. Who promised to sort out Ruby Wax at this year’s Euromoney FX poll dinner, and where does he work?

     8 ‘Lord’ Peter Lewis, HSBC;

9. How many global FX heads has Merrill Lynch actually had in the last decade?

     9 7?

10. Who is the FX market’s highest climbing participant (probably)? 
     10 Peloton Partner’s Dave Tait, who has climbed Mount Everest.

Money for nothing and no IPOs for free

Rumours abound about the much-publicised on/off (IPO) of CMC Markets. The company was originally established in 1989 as an FX outfit dedicated to delivering a new level of service to the then neglected retail sector. There is no doubt that CMC has largely fulfilled its original aims. It has a long history of innovation and claims it was the first company to have made real-time FX prices available to trade over the internet, something now taken for granted. The company now provides various services across asset classes to clients around the world.

CMC, which used to trade in the UK under the brand name of Deal4Free until it rebranded after complaints to the country’s Advertising Standards Authority, was scheduled to IPO in May 2006. However, this was pulled after a brief downturn in the broader market.

“I get asked about the IPO all the time. We pulled it last year because of the state of the market,” says CMC’s founder and chief executive Peter Cruddas. He adds that the decision not to IPO was taken just one hour before it was due to go ahead.

Cruddas, who owns or controls 95% of CMC, had been looking for a capitalization for the company of between £630 million to £760 million. Many felt that this was extremely rich. For instance, the then chief executive of CMC’s publicly quoted rival IG Group Nat Le Roux stated in January 2006, when discussing the barriers preventing consolidation in the UK spread betting industry, that CMC had: “what I regard as unduly aggressive views about their own valuation.”

However, looking at the two companies’ published results, Cruddas’ view of CMC’s valuation may not be too far fetched. IG Group reported net income of around £36 million for the year to May 2006; it currently has a market capitalisation of around £970 million. The company is trading on a prospective P/E ratio of around 22. CMC’s normalised profit before tax for the year to March 2006 came in at £37.6 million.

Cruddas admits that the market seemed unwilling to value CMC on projected earnings, which he feels was a mistake. The company has invested heavily around the world for future growth, opening new offices, employing more staff and maintaining and upgrading its trading platforms. Cruddas also paid himself an exceptional bonus of £5.3 million, all of which obviously affected the net profit for 2006. Since the IPO was pulled, Cruddas says CMC has exceeded growth forecasts by 30% to 40% in terms of number of clients, turnover and revenue increase.

However, given CMC’s stated intention to float in 2006 and the fact that the market is trading at or close to five-year highs, it is perhaps no surprise that tongues are wagging about why the IPO has not occurred. Various rumours are doing the rounds, some of which have originated from within the company. Cruddas seems genuinely upset by this, arguing that the company’s staff is very well looked after. One of the rumours is that CMC’s staff has been told that the IPO is now on hold for at least two years.

As a result, existing share options have allegedly been cancelled. Cruddas says this is not strictly true. “Share options have not been cancelled; they have expired because we did not float within the last year. A new scheme is being put together for the remainder of staff that do not currently have shares in the company; but this is more due to accounting and (Inland) Revenue considerations than anything else.” He says the company will look to issue new options before it eventually floats.

Cruddas says that although Deutsche Bank, one of CMC’s bookrunners, advised the company to review the situation at the end of the summer and possibly go ahead with the IPO in 2006, it has decided to wait. “We could have floated by the end of the calendar year because the market had improved, but it would have been a bit of a rush. The problem with IPOs is that they take up a lot of the directors’ time and, to an extent, take them away from running the business. We have decided we don’t want to do that in 2007. It’s not a commercial decision and I’ve told the staff.”

He concludes: “There are two main reasons I wanted to float after 17 years of running a private company. The first is that I wanted to reward and lock in important staff, and the second was that as a company, we’re expanding rapidly. We felt that we might have needed the profile of a public company to facilitate this, but I wasn’t prepared to give away shares too cheaply.”

Poll dancing

As is their wont at this time of year, many in the FX market are starting to ruminate – not their still to be fully digested Christmas dinners, but about how they will fare in this year’s influential Euromoney FX poll. Perhaps not coincidentally, this is the season of the corporate jolly. Various clients get whisked away for the odd ski weekend, wine tasting in Bordeaux and other delightful pastimes.

Whether or not this affects the ultimate standings in the poll is a matter of debate. However, I did hear last year of one bank that took its clients skiing and had a man with a laptop standing at the bottom of the piste getting them to vote in the poll. Absolutely shameless. I expect my buy-side readers this year to give me a nod and a wink about any such outrageous behaviour. I will have no qualms about naming and shaming.

Of course, the banks will no doubt accuse me of envy, because I don’t get to go on any of the jollies. However, I have already noticed that more lunch invites are coming my way than is normal, including, it must be said, from some institutions I don’t have warm and cosy relationships with. Now, I’m all for talking to anyone, but please be aware that I have no influence whatsoever over the polls. So if invitations are coming my way in some mistaken belief that I do, I advise you not to waste your time.

RBS takes stake in TTT Moneycorp

The Royal Bank of Scotland (RBS) has taken an undisclosed stake in TTT Moneycorp, a company established in London in 1979 to provide FX services to retail, corporate and wholesale clients. Sources say that RBS has taken a 49% stake in the company, which reported a net profit before tax of £7.9 million in the year to end August 2006. It purchased its stake from Bassam Shlewet, the company’s chief executive for the last 27 years, and his family trust.

The move is in many ways similar, although on a smaller scale, to the deal that saw Apax Partners and others take a controlling stake in Travelex in August 2005. It gives RBS a foothold in a sector it might otherwise have had trouble penetrating, specifically the small and medium-sized enterprise market. According to Keith Hatton, who is the company’s deputy chief executive, TTT Moneycorp competes very successfully with the UK’s high street banks for SME business.

“We have to provide SMEs with a dealing room service,” he says. Hatton adds that TTT Moneycorp also has a successful business catering for those buying overseas business. “This is a big business for us, and we have over 2,000 introducing brokers overseas,” he says.

Surprisingly, Hatton claims that the airport bureau de change businesses run by TTT Moneycorp and its competitors barely cover their costs, despite dealing on spreads that are wide enough to drive buses through. This is because of the high rents charged for retail space at such venues, he says.

Looking ahead, Hatton says TTT Moneycorp will further expand what is already a relatively well-diversified business. He says the company will launch a speculative platform in the next couple of months, which may or may not be a white-label solution.

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  Lee Oliver can be contacted at fx@euromoney.com.           


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